Objective 4: Examine domestic monetary policy.
Monetary policy is the use of central bank policies to influence the level of economic activity. Fiscal policy is the use of government purchases, transfer payments, and taxes to influence the level of economic activity (Principles of Macroeconomics, p. 280).
The goals of monetary policy should include the maintenance of full employment, the avoidance of inflation or deflation, and the promotion of economic growth. The monetary policy of the Federal Reserve Bank and the Fed’s expansionary and contractionary monetary policy decisions affects economic growth and international trade.
Also of importance is discussion of the Equation of Exchange: How money supply relates to the aggregate economy: MV=nominal GDP.
The equation of exchange shows that the money supply M times its velocity V equals nominal GDP. Velocity is the number of times the money supply is spent to obtain the goods and services that make up GDP during a particular time period (International Economics, p.425).
Lastly, the role of the government in the economy is an important element. Focus on the US Government spending and how it relates to the GDP. Discuss taxes, transfer payments, the national debt (www.USDebtclock.org). Fiscal policy (government spending) is used to stabilize the economy. Focus on the recent American Recovery and Reinvestment Act of 2009.
Learning Activity #5: Weak vs. Strong Dollar Paper
Discuss the monetary policy of the Federal Reserve Bank and the government’s fiscal policy and how they stabilize the economy.
Write a 2-3 page paper based on an article online or a peer reviewed paper on the value of a weakening dollar relative to other currencies versus the value of a strong dollar relative to other currencies.
To achieve maximum points for content and analysis, include the following elements:
- Under what conditions is a strong US dollar better for the US economy than a weak US dollar and vice-versa?
- Provide at least two additional sources beyond the article. If you cite a dictionary it will be in addition to the required two sources. The Bible is not to be listed on the References page, but does have to be cited in-text.
Submit the completed paper to your facilitator as an attachment in the drop box titled Weak vs Strong Dollar Paper.